1. Were after an extended and huge growth period since 2007 recession, fuelled by QE and low interest rates. Large parts of the markets increased through speculation and debt. If recession or depression hit, more QE and interest wont fix it this time.
Arguably we've been growing due to falling interest rates since the 1980s, and with help from QE since about 2008. Low rates, QE, and helicopter money worked exactly as Keynes predicted decades ago, essentially erasing what would have otherwise been a second Great Depression. In that sense, it has already worked one more time, in 2008 and again in 2020. Of course, Keynes advocating paying down the national debt when the good times returned, which is the part of the plan we are not following. The question is: At what point of national debt does a nation with a reserve currency lose control of interest rates? As long as the US is paying less than the value of inflation for its debt, and collecting just enough taxes, the system is sustainable forever. That is, the growth of the debt matches the growth of the government's ability to collect taxes. I suggest exploring the assumptions behind that plan - it might explain a lot about how and when investors freak out about news items in the short term.
2. Inflation is desired by government due to associated increase in revenue intake (without raising tax) caused by post pandemic increases in consumption and trade.
I think inflation is not desired by governments, which become less popular as prices rise. Inflation is desired by economists, who can see that economic growth is maximized at around 2-3% inflation, which is the sweet spot where the costs of changing menus and signs is offset by the incentive not to park cash in non-productive uses.
3. Inflation could 'cool' the market more controllably than a sudden recession, so may be preferred.
Suppose you own a factory which produces widgets at a 4% return on assets. The factory is leveraged with debt at an interest rate of 3%. If interest rates rise to 4% at the time you need to roll the debt, does the factory start producing near-zero economic profits? Not necessarily. If the factory is able to charge higher prices, and avoid rising costs through automation or other techniques, maybe their ROA rises to 5%. The point is that inflation might 'cool' the market a lot less than expected. Of course, some businesses will be caught between rising costs and an inability to raise prices, such as low-automation industries with foreign competition. Given that the US and Europe have had very low inflation for a very long time, it may be the case that these economies have become organized around the assumption of low inflation, and would be disrupted if that assumption ever changed. This is what happened to Western manufacturing in the 1970s.
4. Inflation could weaken the dollar and make USA exports more attractive, which helps USA in ongoing trade war with China.
It depends... The value of a currency is set by those living outside the currency. E.g. the amount of your Euros you are willing to trade for a Dollar is what sets the value of the Dollar. If you are in a country facing 7% inflation and negative real interest rates, it might be your best option to trade your currency for dollars even if the US is facing 4% or 5% inflation and slightly less negative real interest rates. This dynamic is how wealthy people in places like India or Brazil preserve their purchasing power, and it's also why the US has been able to run a constant budget and trade deficit without the value of its currency plummeting, as would happen if a country like Venezuela or Zimbabwe without a reserve currency attempted such things. Also, note that inflation usually means wages increase too. If inflation raises the cost of production in the US farther beyond the costs of overseas competitors, then US inflation could hurt producers in the US relative to producers in China or elsewhere. E.g. if wages in the US go up 5% but wages in China go up 4%, then goods can be produced at relatively less cost in China.
Dalio, Burry and others say equity is wayover priced and we are in a bubble. Cathy Woods say otherwise.
If Dalio's 'debt cycle' has any meaning, surely we are approaching a massive recession, even if delayed by current QI and policy...even for a few years.....
I also find Dalio's theory fascinating, but it plays out over the course of decades and generations, not the next few years. We are always and always have been "approaching a massive recession". As someone who has lived in the declining US, I can attest that it
always looks like the wheels are going to fall off any second now. It looks like that every day, and has always looked like that every day. This provides fodder for "financial journalists" to write about how the markets "could" crash for all these very good reasons. The reasons are always good.
I once owned a house surrounded by very large oak trees. I noticed lots of dead limbs and concluded that the oaks were probably diseased. If they died in a few years, they would threaten to fall on the house and cost thousands to remove. It's now been a decade since I sold that house. I drove by it the other day and there were the oaks, with lots of dead limbs. I realized they always have dead limbs. They suffer from disease their whole lives, which can be a century or more, and this is normal. Don't sell for that reason.
